Home > How to Set Off Input Tax Credit in GST Regime

How to Set Off Input Tax Credit in GST Regime

In our earlier post, we explained about Input Tax Credit (ITC). Now, let’s move ahead and get familiar with how to set off input credit against tax liability in the GST regime. To ensure we are on the same page, you must run-up on the basic fundamentals of GST.

Recap: What is IGST, CGST and SGST?

Since GST subsumed all indirect taxes of central government and state governments (excise duty, service tax, custom duty, VAT, Luxury tax etc), both entities now depend on GST for their indirect tax revenue. GST is a dual concept system composed of two rates, Central GST (CGST) and State GST (SGST). On every transaction within a state, CGST collected will go to the central government and SGST collected will go the concerned state government in which the sale is made. Whenever, a sale is made within a Union territory, UTGST is applied in place of SGST. In case of interstate transactions IGST is applicable (To know more about UTGST, read our post here).

The order in which input credit needs to be set off has been explained in the table below:-

Tax credit to be set offAvailable Input Tax Credit (In the order of utilization)

Please note that outward CGST cannot be compensated with available Input credit of SGST and vice versa. However, both CGST and SGST can be compensated by IGST and vice versa also holds true.

Let us explain the utilization of IGST, CGST and SGST through following 3 examples:

Rhonda Motorcycles is a motorcycle manufacturer based out of Haryana. It procures from its Tier-1 and Tier-2 ancillaries across India, manufactures motorcycles and sells motorcycle and its spare parts to its Dealer across India.

1. Utilization of IGST

Rhonda Motorcycles procures Fuel tank for its motorcycles from its supplier JKM Industries based out of Noida, Uttar Pradesh and Seats from its supplier Classic Seats bases out of Nashik, Maharashtra. Then it sells its motorcycles to its dealer Dev Automobiles based out of Gurgaon, Haryana and spares to its dealer Unique Enterprises in Bangalore, Karnataka.

The detail of transactions effected by Rhonda Motorcycles is furnished below:

The available Input Tax credit of IGST is utilized by Rhonda Motorcycles as follows:

IGST Input Credit

35,000 + 20,000 = 55,000

IGST Liability


CGST Liability


SGST Liability


IGST Input Credit – 55,000

IGST Liability – 10,000

Balance IGST Input Credit – 45,000

IGST Liability – 0

Balance IGST Input Credit – 45,000

CGST Liability – 30,000

Balance IGST Input Credit – 15,000

CGST Liability – 0

Balance IGST Input Credit – 15,000

SGST Liability – 30,000

Balance IGST Input Credit – 0

SGST Liability – 15,000

As shown above:

  • Rhonda Motorcycles has IGST input tax credit of 55,000 and tax liabilities of IGST ₹10,000, CGST ₹30,000 and SGST ₹30,000
  • As prescribed by GST Law, IGST Input credit needs to be utilized first to set off IGST tax liability. The remaining ITC can be used to set off CGST and then against the SGST liability, in that order.
  • Rhonda Motorcycles first utilizes IGST ITC to set off IGST liability of 10,000
  • Remaining IGST ITC credit, ₹45,000 (55,000 – 10,000) is used to set off CGST liability of 30,000
  • Now the remaining IGST ITC of ₹15,000 (30,000 – 15,000) is used to set off SGST liability to the extent of 15,000.
  • Now, after utilization of Input credit available of ₹15,000, the SGST liability of Rhonda Motorcycles is 15,000

2. Utilization of CGST and SGST

Rhonda Motorcycles procures headlights from Tier-1 ancillary Lomax Industries, and sells to its dealer Dev Automobiles based out of Gurgaon, Haryana

The detail of transactions effected by Rhonda Motorcycles is furnished below:

The available Input Tax credit of SGST and CGST ₹ 2,00,000 (1,00,000 + 1,00,000) is utilized by Rhonda Motorcycles as follows:

As shown above, the total liability of Rhonda Motorcycles is ₹10,000.

  • Rhonda Motorcycles have Input tax credit of 1,00,000 each against CGST and SGST.
  • As prescribed by Law, Rhonda Motorcycles first utilized ITC of CGST 1,00,000 to set off CGST liability of 1,05,000 (80,000+25,000). After this adjustment, CGST liability is 5,000 (1,05,000 – 1,00,000).
  • Now, SGST input credit of 1,00,000 is set off against SGST liability of 1,05,000 (80,000+25,000). After setting off SGST input credit, 5,000 (1,05,000 – 1,00,000) is the SGST liability.
  • After utilizing the available input credit of both CGST and SGST, the tax liability of Rhonda Motorcycles is 10,000 (CGST liability 5,000 + SGST liability 5,000).

3. CGST and SGST are not be interchangeable

Let us consider a scenario where Rhonda Motorcycles has available carry forward balance of SGST Input credit of ₹12,000

During the same month, Rhonda Motorcycles has the following outward supply:

As shown above,

  • Rhonda Motorcycles utilized SGST Input Credit of previous period ₹12,000 to set off SGST liability of current period ₹10,000
  • After this set off, Rhonda Motorcycles has a balance SGST input credit of ₹2,000
  • As prescribed by the Law, excess SGST Input Credit for the period cannot be set off against CGST and vice versa.
  • Thus the CGST liability for Rhonda Motorcycles for the months is ₹10,000 even after SGST input credit of ₹2,000 is left unutilized.

Will the GST India, enable us to avail tax cascading benefits?

Many of us are well aware of the fact that service tax and VAT, both have cascading benefits, which implies that you can avail the credit of tax, paid by you on the inputs. For instance, in case of service tax, you charge service tax on services you offer, and, while depositing this tax, you can avail credit of service tax, paid by you on services, utilized as inputs.

Therefore, the cascading benefit shall continue to be available under GST also.

Simplify your GST Return Filing & Invoicing with GreenGST

15 Comments “How to Set Off Input Tax Credit in GST Regime

  • wonderful business
    August 4, 2017 1:03 pmReply

    Hi, everything is going perfectly here and ofcourse every one
    is sharing information, that’s actually fine, keep up writing.

  • duplicate key
    August 5, 2017 12:06 amReply

    I blog frequently and I truly appreciate your content.

    The article has really peaked my interest. I’m going to book mark
    your website and keep checking for new details
    about once a week. I subscribed to your RSS feed
    as well.

  • cars value
    August 5, 2017 3:04 amReply

    This article will help the internet people for building up new weblog or even a blog from start to end.

  • used kia cars
    August 5, 2017 8:59 pmReply

    These are in fact impressive ideas in regarding blogging.
    You have touched some nice things here. Any way keep up

  • security systems
    August 5, 2017 10:56 pmReply

    Great post.

  • 00058.net
    August 8, 2017 2:54 amReply

    Ahaa, its nice conversation regarding this piece of writing at this place at this weblog, I have read all that,
    so at this time me also commenting here.

    August 9, 2017 9:12 pmReply

    I’ll immediately clutch your rss feed as I can’t in finding your e-mail subscription link or
    e-newsletter service. Do you have any? Please permit me recognise so that I could subscribe.

  • Silvia Odete Morani Massad
    August 10, 2017 11:25 amReply

    What’s up, this weekend is good for me, for the reason that this time i
    am reading this wonderful educational article here at my residence.

  • business managers
    August 10, 2017 9:53 pmReply

    I savour, result in I discovered exactly what I used to be having a look for.
    You’ve ended my 4 day long hunt! God Bless you man. Have a nice day.

  • leyland chief
    August 11, 2017 4:58 amReply

    Hello my loved one! I wish to say that this article is awesome, nice written and
    come with approximately all significant infos. I’d like to look more posts like this .

  • wonderful business
    August 11, 2017 6:22 amReply

    Helpful info. Fortunate me I discovered your web site by accident,
    and I am stunned why this twist of fate didn’t took place earlier!
    I bookmarked it.

  • chief operating officer definition
    August 11, 2017 7:45 amReply

    Fastidious answer back in return of this issue with genuine arguments and explaining the whole thing regarding

    August 29, 2017 12:05 amReply


  • Kartik Kumar Sahoo
    January 2, 2018 12:24 pmReply

    I have 188670 CGST ITC, 120314 SGST ITC,and 30000 IGST and liability under cgst-159241,cgst-159241 How i can set off this liability.

  • Vimal R Shah
    January 25, 2018 9:26 pmReply

    Gst set off is superbly explained

Leave a reply


Related Post

Smart and Secure GST Filing Software Online in India – GreenGST

GST India is a comprehensive tax on manufacturing, sale and consumption of goods and services at national level, under, which no distinction will be made between, goods and services for levying of tax. GST India has subsumed almost every indirect tax, levied on goods and services by the Central and State governments in India.

GST has a G2B portal for taxpayers, to access the GST System, seeking to file their GST returns. However that would not be the only way, for interacting with the GST India Services, as the taxpayer, pertaining to his preference of third party applications, for instance GreenGST, will be able to interact with the GST system, seamlessly, sans any hassle via desktop, mobile and other interfaces.

The Advent of GST has paved way for modern SAAS based software’s, to facilitate your tax filing management. Therefore, to handle the great number of invoices that will be uploaded and GST returns that will be filed, every single day, there arises a great need for reliable GST filing software that will chisel out your GST filing woes, all at once! This is where, innovative SAAS based GST Software, such as GreenGST, wade their way to decongest the scenario of GST filing in India.

GreenGST, a product by Moglix, is a one stop-solution for meeting all your GST compliance needs. We extend our expertise in commerce, manufacturing and supply chain to solve problems related to digitization of supply chain as well as making it GST Compliant. Green GST makes your GSTR filing seamless irrespective of whether you are the buyer or the seller.

GreenGST helps you in reporting, invoice creations, reconciliation and GST filing. Our system will not only keep you GST compliant but it also comes with a dashboard based on daily analytics. It will gently remind you five days prior to the deadlines, so that you can download the report on non-compliant vendors and be safe from the hassle of last minute rush.


Test your GST readiness with this fun and interactive checklist!